Cohen v. Commissioner of Internal Revenue, 6665-6668.
| Decision Date | 12 April 1935 |
| Docket Number | No. 6665-6668.,6665-6668. |
| Citation | 77 F.2d 184 |
| Parties | COHEN v. COMMISSIONER OF INTERNAL REVENUE, and three other cases. |
| Court | U.S. Court of Appeals — Sixth Circuit |
H. K. McCook, of Washington, D. C. (and DeVries, Crawford & McCook, of Washington, D. C., on the brief), for petitioners.
R. N. Anderson, of Washington, D. C. (Frank J. Wideman and Sewall Key, both of Washington, D. C., on the brief), for respondent.
Before MOORMAN, HICKS, and ALLEN, Circuit Judges.
These cases arise out of separate petitions to review four separate orders of the Board of Tax Appeals sustaining deficiency assessments against the petitioners. 28 B. T. A. 190. The proceedings were consolidated and heard as one before the Board. The petitioners sought a redetermination of deficiencies in income tax found by the Commissioner for 1928.
The sole question is whether the amounts upon which these deficiencies are calculated constituted income in 1928. The controversy arises as follows:
Petitioners, who were shareholders in and employed by The Dan Cohen Company, a corporation, each had an account with the corporation to which was credited salary and dividends, and to which was charged as a debit all cash withdrawals. Upon December 31, 1924, the cash withdrawals of the petitioners respectively exceeded their credits by the following amounts, for the years given:
Nathan Rosenbaum, 1913 to
1924, inclusive ....................... $ 9,947.00
Nathan Cohen, 1910 to 1924, inclusive .. $62,951.06
Moses Cohen, 1912 to 1924, inclusive ... $76,615.12
Mr. and Mrs. Edward Godfried
1912 to 1924, inclusive ............... $26,258.99
Upon October 16, 1928, at a special meeting of the board of directors, a resolution was passed by which the above amounts were "cancelled and charged off against surplus," as of December 31, 1924. A second resolution was passed at the same meeting, by which the amounts of withdrawals of the petitioners for the years 1925, 1926 and 1927 were "charged off in lieu of a common stock dividend against the surplus of the company."
The petitioners filed amended returns for the years 1925, 1926 and 1927, in which they reported the amount of their debit balances for those particular years as dividends. Prior to 1924 they returned none of their cash withdrawals as income.
The Commissioner included in the income of each petitioner as dividends for 1928 the amount of his respective debit balance on December 31, 1924, cancelled by the resolution of October 16, 1928. The petitioners contend that since they received no cash or any other property from the corporation in 1928, these amounts cannot be charged as income arising in that year. Sections 22 (a) and 115 (a) of the Revenue Act of 1928, 26 USCA §§ 2022 (a), 2115 (a).
It is contended that under section 8623-123c of the General Code of Ohio, any liability incurred by the petitioners for the amount of the withdrawals was outlawed within two years, and hence that the resolution of October 16, 1928, did not extinguish a collectible liability. This statute has no bearing, as it was enacted in 1929, subsequent to the resolution of cancellation. 113 Ohio Laws, p. 459.
The petitioners also claim that the six-year statute of limitations applies, and that therefore all withdrawals prior to the expiration of this statute, some of which withdrawals dated from the year 1910, could not be recovered in an action brought by the corporation against any of the stockholders. However, the running of the statute does not cancel an indebtedness; it simply suspends the remedy.
It is the general rule that a dividend is taxable in the year in which it is received, and not in the year in which it is declared. Mason v. Routzahn, Collector, 275 U. S. 175, 48 S. Ct. 50, 72 L. Ed. 223; United States v. Phillips, 24 F.(2d) 195 (C. C. A. 3). This rule, however, applies when a dividend is declared as such, and to the usual situation where a dividend is first declared and subsequently paid.
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